GST migration and transition came into effect from July 1, 2017. This consolidates all the several taxes of a business into one uniform Easy GST tax. Each state, prior to the introduction of GST had taxes with different compliance forms like Excise Duty, VAT, Service Tax among others. The GST transition provisions and rules under the GST regime are meant to ensure that the process of migration and transition happens easily and the necessary rules are adhered to, to facilitate the process. The ease of the GST migration process is chiefly dependent on how effectively the GST transitional provisions are followed by everyone.
Under the GST transition rules, a registered taxable person can claim an input tax credit of both, the central and state taxes (applicable in the current regime) paid on goods/services received after GST. The key condition is that the invoice must be recorded in the books of accounts within 30 days from the GST implementation date. Let us now understand how the process is implemented and what transitional provisions under GST are in place on your GST transition checklist.
Did you know? With the implementation of the GST and after a year of GST transition, the line-up of trucks at state borders eventually disappeared and created a seamless national market.
The GST Registration Transition:
The transition of GST registration is the first and foremost aspect of the GST transition checklist. Any dealer who is registered under State VAT, Central Excise, and Service tax. in the current regime, and holds a valid PAN card shall be given a provisional certificate of registration in GST in Form GST REG-25. This will be included as a part of the GST migration process.
Once the provisional registration certificate is issued the dealer will have a time frame of 90 days to submit the prescribed documents in Form GST REG-24 and to convert the provisional registration into a final registration. If the information provided is complete and satisfactory, the final registration certificate will be issued in Form GST REG-06.
During the transition phase, if a taxable person is not required to register under GST, but was previously registered (Central and State law), they have an option to cancel the provisional registration issued by submitting the Form GST REG-28 – within 30 days of transition to GST i.e. by 31st July 2017.
The ITC transitions:
The next item on your checklist will be the GST transitional provisions rules of Input Tax Credits or ITCs under the VAT, Service Tax or Excise Duty to GST. Registered dealers choosing to file under the GST COT or composition of taxes scheme are disallowed to carry forward the available ITCs from the pre-GST regime to the GST regime.
ITC of last returns filed in the current regime:
Under the GST regime’s transition to GST rules, the taxable registered dealer can carry forward the ITC amounts from Entry Tax, VAT, and CENVAT available as a credit in the electronic ledger and as per the returns filed under the pre-GST regime for the quarter or month ending 30th July 2017. But, this benefit is allowed only if all previous returns for 6 months before July 2017 have been filed by the dealer as per the pre-GST tax requirements. ITCs for 6-months before GST implementation means the returns from January to June 2017 should have been filed and the GST Form TRAN-1 needs to be filed before December 27th 2017 to avail the ITC credits. Note the TRAN-1 form can be rectified just once.
Transition of ITC in the Excise/VAT paid on Capital Goods:
All registered taxable persons shall be entitled to take, in their electronic credit ledger:
- Credit of the amount of CENVAT
- VAT and Entry Tax carried forward in a return, furnished under the earlier law, by them for the month/quarter ending 30th June 2017
For example, if the ITCs available on purchase of Capital Goods in FY 2016-17 is ₹20,000, then 50% or 10,000 ₹ can be claimed in the same financial year and the balance of ₹10,000 can be claimed in the subsequent financial year. However, under the GST regime, ITC credit is not currently available under Tran 3 GST and is applicable only on certain specified goods. Importantly, the dealer can claim the full ITC credit available under the Excise or VAT paid for capital goods.
Transition of ITC in the excise paid on goods in stock:
The transitional rules GST caused a lot of concerns regarding the excise duty paid on stocked inventory goods and how these will be treated in the migration process to GST. Note that immaterial of the below classification, a registered dealer must submit the format GST Form TRAN-1 electronically with signature on the GST portal to claim credit of the ITC on excise duty. This form is to be submitted within 90 days. Three cases can broadly be made out to deal with these concerns and are discussed below.
ITC on VAT/ Excise Invoice paid on Capital Goods:
At present, the ITC against the purchase of capital goods is not immediately available. It is available for only some specified capital goods. As per the CENVAT Credit Rules of 2004, only 50% credit can be availed during the first year and the remaining 50% credit can be availed in any of the subsequent financial years.
Similarly, in most of the states, the ITC for capital goods is made available in the form of instalments spread across several months. In others, the ITC is available only when the capital goods are put to business use. One of the key changes brought about in the GST regime is the ability of a dealer to claim the full balance of VAT/Excise credit on capital goods as ITC.
Credit of excise paid on goods in stock: A key concern is the fate of excise duty paid for goods that are lying in stock and their treatment in the GST transition process. Here, you have to consider three different scenarios:
- Excise Invoice Available: Dealers who have purchased from manufacturers. The 1st stage and 2nd stage dealers will have an invoice with excise duty clearly mentioned and they will be able to take 100% credit of the excise that is paid.
- Credit Transfer Document Available: Dealers who are retailers and have purchased from parties other than the above. These dealers will not have any invoice that mentions the amount of excise paid because they would have already incurred those costs. In case the dealer has been issued a Credit Transfer Document by the manufacturer, it will serve as evidence of excise duty paid. Such a document can be issued by a manufacturer for goods having a value of more than ₹25000 per item, bearing the brand name of the manufacturer, if verifiable inventory and supply chain records are maintained.
- If the Excise Invoice or the CTD are not available: Under such circumstances, the dealer can take an input tax credit of 60% of CGST paid on outward supplies under GST. This will be applicable only where the CGST rate is 9% or more (i.e. GST rate is 18% or more) and 40% of CGST paid on outward supplies under GST in other cases for a period of six months, on stocks that were not unconditionally exempted earlier. In the case of inter-state supplies, the credit allowed on IGST paid will be 30% and 20% respectively.
Credit on goods in transit:
This provision has been made for goods in transit. In the GST regime, a registered taxable dealer can claim an input tax credit of the State and Central taxes paid for the goods in transit before the GST migration date and received post-GST implementation. However, such invoices of the goods are to be recorded in the accounting books within 30 days (i.e. before 31st July 2017). If sufficient reason is provided, the 30 days afforded can be extended to 30 more days.
The dealer is required to furnish relevant documents and/ or a statement of such goods for which the ITC is availed. The GST provisions discussed above mean that service providers and manufacturers who do not have the excise paid invoice will not be permitted to claim ITCs under the GST provisions. Only dealers or traders can claim ITC credit when the excise invoice is not available. The conditions to avail the ITCs are that
- The stock on which ITCs is claimed should be separately identified.
- The dealer can claim the ITCs only when the benefit of the ITC has been passed to the final consumer
Transition of ITC on input goods:
Who else can claim the ITC on inputs of stocks held as of July 1,, 2017? All taxable persons in the below categories can claim ITC of inputs held in stocks as of July 1, 2017.
- An importer who is registered.
- Persons engaged in providing services that are exempted from taxes or in the manufacture of goods that are exempted from taxes.
- Pre-GST unregistered dealers who opt for a GST registration.
- A second stage or first stage dealer.
- Persons availing tax abatement and engaged in works contract services.
However, the person must fulfil the below conditions. Namely,
- The taxpayer is eligible for ITC on inputs.
- The goods are used in the business and for the making of a taxable product.
- The services supplier is ineligible for any GST abatement.
- The taxpayer has the invoice for excise duty paid in the pre-GST regime.
- The tax benefit is passed to the customer through a reduction in the prices.
- The tax invoices are for the FY and not older than a year.
This article clearly informs you of the fact that smooth transition provisions are a pre-condition for the successful implementation of GST at all times. When businesses are GST-compliant, they can experience the merits of having a unified tax system and easy input credits. Do you have issues with payment management and GST? Install the Khatabook app, a friend-in-need, and a one-stop solution for all issues related to income-tax or GST filing, employee management and more. Try it today!